Kenya has for years lagged behind countries like Rwanda, which has been touted as one of the most investor-friendly countries in the region and the continent. From an investor’s standpoint, Rwanda is reputed to have a quicker turnaround time in critical parameters, such as registration of businesses, procurement of government licences, conclusion of land transactions, amongst others.
It is against this background of playing catch-up to business-friendly countries that the Business Laws (Amendment) Act, 2020 (the Act) was enacted. The Act came into force on 18th March 2020, with the intention being to make conducting business in Kenya easier, thus making the country an attractive investment destination, which would in turn create a conducive climate for the attainment of longer term objectives such as the Big 4 Agenda and Vision 2030. In this article, we highlight some notable amendments to existing statutes brought about by the Act.
Previously, the Law of Contract Act (Cap. 23) Laws of Kenya, did not expressly provide that a contract could be executed electronically. The Act has now amended the provisions of section 3 (6) of the Law of Contract Act to the extent that advanced electronic signatures shall going forward, be recognized as valid signatures. Therefore, contracts bearing such signatures would be considered to have been validly executed.
Section 44 of the Land Registration Act, 2012 (LRA), sets out the requirements for execution of instruments. A new subsection 3A has been introduced by the Act. It states that where an instrument is executed either by electronic signature or advanced electronic signature by persons consenting thereto, it shall be deemed to have been validly executed. The Act further introduces a new section 45 (3) (c) of the LRA, empowering the Registrar to dispense with verification of signatures, if an instrument has been electronically processed and executed by the parties consenting to it.
The definition section of the Registration of Documents Act (Cap.285) Laws of Kenya (RDA) has also been amended by the Act, to recognize an advanced electronic signature and electronic signature as a means of signing documents under that statute. The upshot of this amendment is that both execution of documents and countersigning of alterations is to be considered valid, if done electronically. Furthermore, the endorsement by the Registrar of Documents under section 26 of the RDA, as proof of registration of documents, may also be done electronically. The recognition of the validity of electronic signatures is intended to make execution of documents easier, by dispensing with the mandatory requirement of manual signing of documents by the signatories, especially when dealing with voluminous documents. At the same time, the need to ensure the uniqueness or exclusivity of such electronic signatures is not compromised.
It is also noteworthy that the LRA expressly states in the new section 44(3A) that an instrument effecting a disposition in land can either be signed by an electronic signature or an advanced electronic signature, where parties consent. This means that an electronic signature or an advanced electronic signature can be used in the alternative. Since a disposition includes a sale, charge or transfer, one wonders how a signatory’s execution will be authenticated where he or she opts to use an electronic signature in a sale agreement and an advanced electronic signature in the transfer instrument?
Interestingly, the mandate of regulation of the use of electronic signatures rests with the Communications Authority of Kenya (CA). The Cabinet Secretary responsible for Information, Communication and Technology is required, in consultation with CA, to prescribe regulations governing the use of electronic signatures as per section 83R of Kenya Information and Communications Act, 1998 (KICA). It will be interesting to see the interplay between CA and the Ministry of Lands and Physical Planning, as far as the verification of electronic signatures is concerned. It is hoped that such regulations will address the concerns raised above.
Electronic Registries and Records
The Act has amended the definition of a “book” in section 2 of the RDA to include an electronic book. This is in tandem with the introduction of a new section 3(2) of the RDA which has been introduced by the Act, to enable the Registrar of Documents to establish both the Principal Registry in Nairobi and the Coast Registry in electronic form.
The relevance of these amendments is that the records i.e. the different registers that are kept by the Registrars of Documents as per section 19 of the RDA, may also be kept in electronic form. This may be useful as far as the safeguarding of information is concerned, as there have been instances where some of these registers are either misfiled or misplaced, hence registrations cannot proceed unless they are found or other registers opened in their place. Furthermore, electronic records will facilitate a multi-user platform, as different Registrars will be able to access the same records concurrently, instead of the manual system where they had to wait for use one person at a time.
Equally, a new section 4 (2) of the RDA has been introduced to authorize the registration of a document either physically or electronically. This is intended to ease the process of registration of documents under the RDA, as one may not require to physically present a document for registration at either of the two Registries. One would be able to apply for registration remotely, notwithstanding their location in the country.
Lastly, section 83B (1) (c) of KICA has also been amended by the Act, thereby bringing the execution of documents of title within the ambit of Part VI of the KICA. This means that such execution is subject to the same provisions governing the use of electronic signatures and records and maybe perceived as a means of digitizing signatures and title records.
Electronic Processing of Documents
Sections 5 (1) and (2) of the Act as read together with section 32 of the Survey Act (Cap. 299) Laws of Kenya (Survey Act) provide that the Director of Surveys may imprint the seal of the Survey of Kenya on the survey plans authenticated by the Survey Department. The Act introduces a new section 5 (3) of the Survey Act which provides that documents processed electronically and which bear a prescribed security feature, shall be deemed to bear the imprint of the seal of the Survey of Kenya. Section 30 (1) of the Survey Act is also amended to provide that a surveyor who undertakes a survey shall send to the Director of Surveys all the supporting field documentation either physically or electronically.
These amendments to the Survey Act are meant to ensure the survey process is expedited. Survey documents e.g. deed plans, may be prepared electronically hence it will be faster and easier, especially where editing or correction of information is necessary. Furthermore, a surveyor irrespective of where he or she is based in the country, will no longer need not travel to the Survey of Kenya offices located along the Thika Superhighway, to physically present the supporting field documentation for every survey undertaken. The surveyor will simply electronically dispatch or upload such documents, to the designated email address or portal, from the comfort of their office. This will save both time and expenses.
Section 119 of the Stamp Duty Act (Cap. 480) Laws of Kenya has been amended to provide that documents can be electronically stamped, extending the scope of the initial provision which only recognized stamping by a franking machine or an adhesive stamp. This will come in handy in terms of easing the backlogs that are oftentimes witnessed at the Lands Offices, especially for documents that must be franked. There have been instances where either the franking machine breaks down and has to be repaired, or attains the monetary limit, hence has to be taken to the Collector of Stamp Duty in Nairobi to be reset. These interruptions have resulted in delays in finalizing the stamping formalities and will hopefully now be a thing of the past.
Land Rent and Rates
Sections 38 and 39 of the LRA required a person seeking to register an interest in land to provide proof of payment of land rates and land rent before registration is effected. An application for registration therefore had to be accompanied with Rates and Rent Clearance Certificates where rent and rates were payable.
Sections 22 and 23 of the Act have deleted these provisions entirely from the LRA. This implies that it shall no longer be mandatory to produce Land Rent and Rates Clearance Certificates, when applying for registration of an interest in land. Transferees therefore have to individually carry out due diligence and satisfy themselves that rent and rates have been paid in order to avoid assuming these liabilities.
It is however important to note that although sections 38 and 39 have been expunged from the LRA, sections 55 (b) and 56 (4) of the LRA which require the production of a Rent Clearance Certificate and Consent to Lease or Charge prior to registration remain in force. It will therefore be necessary to address this disparity going forward, in order to clarify the applicable completion documents in property dealings.
Sections 29 to 33 of the Act deleted sections 37 (1), 38, 42 and 43 of the Companies Act, 2015 (Companies Act). In summary, these provisions required a company to maintain a common seal and use it in the execution of its documents. In addition to its common seal, a company would also have had an official seal for use either outside Kenya or on other documents such as share certificates or securities. Lastly, section 495 of the Companies Act has been amended to the effect that share certificates do not have to be sealed, so as to be considered as sufficient proof of a member’s shareholding in a company.
The essence of these amendments can be summed up by the provisions of section 37 (2) of the Companies Act. It states that a document will be considered as validly executed by a company if signed by either two signatories on its behalf, or by a director in the presence of a witness who will attest his or her signature. This has simplified the execution process of company documentation by doing away with the additional sealing requirement that existed previously. However, it is noteworthy that the issue of electronic signatures or advanced electronic signatures has not yet been incorporated into the new execution requirements of company documents.
The main objective of the amendments is to expedite business processes by dispensing with unnecessary formalities, which have tended to delay transactions over the years. However, the quest for Kenya to attain the coveted status of an investment hub requires a holistic approach, not restricted to a few legislative amendments. Other relevant considerations include proper infrastructure, political stability and security of both citizens and foreigners. Nevertheless, the Act is good progress, noting that the journey of a thousand miles begins with a single step.